
May 8, 2020
Rip Off the Band-Aid | Chamath Palihapitiya on Business Casual Podcast
Check out the Business Casual Episode Page & Show Notes
Key Takeaways
- In a healthy economy, if a company loses money and sells a fundamentally flawed product, it goes bankrupt and liquidates its assets
- Instead, now we have zombie companies staying on life support
- Steps to a healthier economy:
- 1. Much stricter limits on what a balance sheet needs to look like to be rated as high-quality debt
- 2. Disincentivize people from not investing in the future
- 3. Create positive incentives to better capitalize on R&D
- 4. Additionally, limit how much leverage hedge funds have
- If it was up to Chamath, he would have an entire wave of spending on next-generation things (E.g. best healthcare, education, next-gen military)
- The damage done by COVID-19 is ripping apart working and middle-class families. It will only be apparent in a few months, and they need more support than corporations
- Should billionaires exist? “Of course they should, it’s an embodiment of the fact that people can be successful” – Chamath Palihapitiya
- Bitcoin is an insurance policy
- Buy a very small amount (1% of your net worth) and don’t ever look at it, it may save you someday
Intro
- Chamath Palihapitiya (@chamath), is the CEO of Social Capital
- Check out the Podcast Notes from part 1 of this interview and these Podcast Notes from his appearance on The Pomp Podcast
- Host: Kinsey Grant (@KinseyGrant)
Why aren’t Zombie Companies Failing?
- There is enough debt, banks, and debt buyers in the world that allow these companies to stay on life support
- In a healthy economy, if a company loses money and has a fundamentally flawed product, it goes bankrupt and liquidates its assets
- Instead, now we have zombie companies focus on profiteering in the short term
- A glaring example: IBM is a $100B company that spent $140B on stock buybacks
- IBM’s last CEO over-saw 24 quarters of declining revenue and rising compensation
Steps to a Healthier Economy
- 1. Much stricter limits on what a balance sheet needs to look like to be rated as high-quality debt
- 2. Disincentivize people from not investing in the future
- Prevent buybacks and dividends when companies have enormous profits
- 3. Create positive incentives to better capitalize on R&D
- E.g. Hiring an R&D engineer in Canada can come with tax credit almost 3 times the salary
- 4. Additionally, limit how much leverage hedge funds have
- Big leverage means the bigger you are, the less likely you are to fail because somebody will bail you out
- As the old adage goes “if I owe the bank a $1,000 that’s my problem, but if I owe the bank a billion dollars, that’s their problem”
Policy Response to Address Economic Problems
- If it was up to Chamath, he would have an entire wave of spending on next-generation things (E.g. best healthcare, education, next-gen military)
- US government proved it’s willing to spend trillions. It will be better directed at innovation and productivity as that gets money flowing downstream
- Medium-term: be a bridge, individuals needs support more than corporations
- The damage done by COVID-19 is ripping apart working and middle-class families. It will only be apparent in a few months, and they need more support than corporations
- The wealthy are doing fine in this economic crisis.
- “I would rather the younger version me gets taken care off before the older version of me” – Chamath Palihapitiya
Should Billionaires Exist?
- “Of course they should, it’s an embodiment of the fact that people can be successful” – Chamath Palihapitiya
- For most people, money is a byproduct of something they did, not as a result of obsessing about getting rich
- You want that example for the coming generations
- Imagine an NBA where if you are good as LeBron James, you will be allowed to play only 5 minutes per game
The Role of Luck in Success
- Imagine a cloud that has a magic drop of rain that makes you successful
- Your job: To work hard to be as large as possible to increase your chances of the raindrop hitting you
- The real problem: Not being able to grow regardless of how hard you work
- Fix the real problem instead of “shooting the cloud”
A Day in the Life of Chamath during COVID 19 Lockdown
- Wakes up at 7, checks email and public markets
- Breakfast in bed
- Aims at getting 10,000 steps per day, and does yoga twice per week via Zoom
- Chamath is watching Billions
- Sleep by 11-12
- Allocate part of the day to calling friends
- Take away: During a lockdown, following a strict routine will minimize your anxiety
Most Controversial Takes
- The economy is heading towards a depression, 2 events may occur:
- China invades Taiwan to get access to key technologies
- The Middle East fragments up into many smaller countries
Chamath: In on Bitcoin
- He started buying Bitcoin back when it was $85 per bitcoin, he sees it as an insurance policy
- If we don’t fix the combination of capitalism and democracy, we will go through a financial cataclysm, and people will lose faith in the US system
- Buy a very small amount (1% of your net worth) and don’t ever look at it; it may save you someday